Exam-style questions: Short answer and data response
1) When Jameel lost his job in a fruit and vegetable shop that closed down, he decided to open
his own store. He had good contacts with suppliers. They said they would give him one
month’s credit before he paid for supplies. Jameel had $5000 in savings to invest in the shop.
He thought this would be sufficient to start the business. He is an independent man – he never
liked taking the manager’s orders in the food shop! He wanted to operate his new business as a
sole trader.
a. Define ‘sole trader’. [2 Marks]
Ans: A Sole trader is an individual who owns and controls their business independently. They
keep all the profits but also have unlimited liability for the business’s debts.
b. Identify two other types of business organisations. [2 Marks]
Ans: Partnership & Public Limited Company
c. Outline two benefits to Jameel of operating his business as a sole trader. [4 Marks]
Ans:
1. Keeps all the profit – As a sole trader, Jameel does not have to share profits with
anyone else. This can be motivating and allows him to benefit directly from the
business's success.
2. Easy to set up – Setting up as a sole trader involves fewer legal formalities and less
paperwork compared to other types of businesses. This allows Jameel to start operating
quickly and with low initial costs.
d. Explain two drawbacks to Jameel of operating his business as a sole trader. [6 Marks]
Ans:
1. Unlimited liability – Jameel will be personally responsible for all the debts and
financial losses of the business. This means his personal assets could be at risk if the
business fails.
2. Lack of expansion – Raising enough capital alone can be difficult, and managing the
entire business without any partners or shared responsibility can become frustrating
and stressful for Jameel.
e. Do you think Jameel should open new branches of his business by selling franchises? Justify
your answer. [6 Marks]
Ans: Yes, I believe Jameel should consider selling franchises in the long term.
Advantages:
● Increase in reputation – Franchising helps the brand grow and become more
well-known.
● Increase in capital and sales – Franchisees invest their own money, which helps
Jameel expand without using his own funds.
● Less workload – Daily operations are handled by franchisees, reducing Jameel’s direct
workload.
Disadvantages:
● Training responsibility – Jameel will need to train the franchisees and their staff to
maintain quality.
● Product supervision – He must ensure all branches meet his standards.
● Shared profits – He won't receive all the profit, as a part will go to franchisees.
